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View Full Version : Why can't the Fed just keep raising rates to get rid of inflation?




Hook
08-26-2007, 02:58 PM
Since the goal is to get rid of the Fed, why not have them slowly raise interest rates to the point where no one will borrow from them anymore? The banks will then borrow from savings, etc. and the net effect is that the Fed no longer will influence the economy and money supply.

Darren McFillintheBlank
08-26-2007, 05:03 PM
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fsk
08-26-2007, 11:02 PM
If the Federal Reserve jacked up interest rates, there would be hyperdeflation and another Great Depression.

In a hyperdeflation scenario, the large banks who support the Federal Reserve would start failing.

Hook
08-26-2007, 11:36 PM
If the Federal Reserve jacked up interest rates, there would be hyperdeflation and another Great Depression.

In a hyperdeflation scenario, the large banks who support the Federal Reserve would start failing.

Why would there be hyperdeflation? There wasn't hyperdeflation before the Fed. Banks would simply start lending cash from other customers deposits.
I should have specified in my original question that the Fed would also forgive debt owed to it, so it wouldn't lower the money supply via repayment to the Fed.

Wendi
08-27-2007, 07:52 AM
Why would the FED forgive debt owed to it? The entire problem with the FED is that they are looking out for their OWN interests instead of the NATION'S interests. They have no motivation to do anything that would be beneficial to others and detrimental to themselves.

constituent
08-27-2007, 07:59 AM
how about they just start burning money to generate power?

think about it, saves on foreign oil and will start curbing the money supply.

Johnnybags
08-27-2007, 08:06 AM
The fed and politicians use inflation as a tax for all pet projects, crisis, etc. They want to report 2 percent inflation when its 10. High interest rates choke off growth and the populous get mad. Politicians get culled. If they did not want inflation, politicians would live within their revenues collected, raise taxes to meet expenditures or cut expenditures to meet revenue. The phony money is the holy grail of political hacks and big banks. Most people do not look into it, they just say, gee prices are going up. Its simply another tax, however far more insidious.

fsk
08-27-2007, 08:09 AM
Why would there be hyperdeflation? There wasn't hyperdeflation before the Fed. Banks would simply start lending cash from other customers deposits.
I should have specified in my original question that the Fed would also forgive debt owed to it, so it wouldn't lower the money supply via repayment to the Fed.


Before the Federal Reserve, there was credit-based money based on a gold standard. It's hard to have hyperdeflation under a gold standard, because the money supply can't be reduced below the amount of physical gold.

When the Federal Reserve was created, the USA shifted from sound credit-based money to debt-based money. Debt-based money has an intrinsic structural flaw, which I call "The Compound Interest Paradox".

After the Federal Reserve, there was hyperdeflation during the Great Depression. In the 1920s, the Federal Reserve slashed interest rates, causing a huge expansion in the money supply and in the amount of debt. In 1929, the Federal Reserve jacked up interest rates. This shrank the money supply, because people stopped taking out loans. More loans were repaid than new loans issued.

With debt-based money, the Federal Reserve can shrink the money supply by raising interest rates. During the Great Depression, many banks who weren't Federal Reserve cartel insiders started failing, because they didn't know interest rates were going to be raised. At the bottom of the Great Depression, the banks who supported the Federal Reserve received a massive bailout in the form of interest rate cuts and a default on the gold standard.

The Federal Reserve never forgives debt owed to it. Instead, it issues new money directly to banks in the form of interest rate cuts. Under the Federal Reserve, large international banks are not allowed to fail. The bailout of large banks is paid by everyone else as inflation. That's what's happening right now with subprime mortgage lending.

If you want to understand the Compound Interest Paradox better, see my blog.